R3- M7- State and Local Tax Issues Flashcards
1 State Income Tax Considerations: Part 1 2 State Income Tax Considerations: Part 2
Federal law that protect Taxpayers from the state from imposing Income tax on interstate transactions
Public Law No. 86-272
If multiple states involved, you only have to pay to the state that has the nexus
There is no NEXUS or minimum contact so state cannot impose income tax
ALL SHOULD BE PRESENT
AMAZON!
1 Only business with the state involves solicitation of orders for sale of tangible personal property
- Orders are sent outside for acceptance/ rejections. Buyers are out of that state
- If orders accepted, they are filled by a delivery or shipment outside of the state
NEXUS Prohibition #1 does not APPLY which means persons are liable to pay state income tax
PERSONS INLCUDE
Individuals
partnership
corporations
LLC
- Individual domiciled/resident on that state then still they have to pay the state tax
- Corporations incorporated under the laws of that state- so LLC and partnerships are still protected
- the orders does not qualify as tangible personal property- of its sale of service or other product
NEXUS Prohibition #2 does not APPLY which means persons are liable to pay state income tax
if
- Sales and use tax
- Franchise Tax
- Gross receipts tax- occupation, commercial activity, business
ALLOCATION of Federal Income / LOSS
Line 28 Page 1 F 1120
Federal Taxable income BEFORE
NOL
DRD
BELOW ARE NON BUSINESS INCOME
- Allocation removing NON BUSINESS INCOME
Assign this NBI to a state of commercial domicile (residence) where they should be taxed
Investment Income
Dividends
Capital Gains from stock sale
- Other income - rent or sale of rental property to the state where the property is located.
APPORTIONMENT of Federal Income / LOSS
BUSINESS INCOME - income that is NOT allocated entirely to a state. that will be apportioned.
GENERALLY INCOME FROM PRIMARY BUSINESS ARE APPORTIONABLE ITEMS
- Standard Apportionment factors- based on property, payroll and sales
- Apportionable Business income (NOT ALLOCATED INCOME)
Standard Apportionment Factor
State share= Allocable (NOn business income) + Apportionment share
State apportionment = Apportionment factor X Total apportionable income (Total Business income)
Apportionment Factor
= ((Property/rent expense/ Total property)+ (Payroll paid employees/ Total Payroll) + (Sales from sources/ Total Sales)) divided by 3